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Nalco: Low cost drives EBITDA

Jun 5, 2013

National Aluminium Company Ltd (Nalco) has announced its results for the quarter ended March 2013. The company has reported an increase of 4.6% YoY in net sales and 12.8% YoY decline in net profits respectively during the quarter. Here is our analysis of the results:

Performance summary

Topline of the company increased by 4.6% YoY.

At the operating level, the company reported 37.5% YoY increase in operating profits. Operating margins of the company improved by 5.4% YoY.

Nalco posted a 6% YoY and 2% QoQ drop in aluminium production due to deliberated cut in output since the company finds its aluminium unviable at current aluminium prices. However, alumina performance remained strong with 11% YoY and 43% QoQ jump in sales volume due to commissioning of a new unit.

Nalco reported operating profit of Rs 4.4 bn for 4QFY13, due to sharp reduction in power and fuel cost, aided by better coal availability. Power and fuel cost as a percentage of sales dipped 8.4 percentage points QoQ to 26.2%. Superior 4QFY13 operational performance is unlikely to sustain because coal supply from MCL has been disrupted once again. This will affect metal production and cost in 1QFY14. Alumina refineries, however, continue to operate efficiently.

Cost break-up

(Rs m)

4QFY12

4QFY13

Change

FY12

FY13

Change

Raw Materials

2,484

2,960

19.2%

10,308

11,678

13.3%

% of sales

13.9%

15.9%

15.6%

16.9%

Staff costs

2557

2854

11.6%

10345

11539

11.5%

% of sales

14.3%

15.3%

15.6%

16.7%

Power & fuel

5089

4889

-3.9%

21967

24323

10.7%

% of sales

28.5%

26.2%

33.2%

35.2%

Other Expenses

3721

3662

-1.6%

12015

13198

9.9%

% of sales

20.8%

19.6%

18.2%

19.1%

Change in inventories

929

91

-90.2%

27

-643

NA

% of sales

5.2%

0.5%

0.0%

-0.9%

Nalco reported a decline of 12.8% YoY in net profit. Other income declined by 10.5% YoY to Rs 1.2 bn. Net profit margins declined from 15.8% in 4QFY12 to 13.2% in 4QFY13. As on March 2013, company has cash and cash equivalents of Rs 48 bn.

What to expect?

Nalco has been carrying out bauxite mining activity at Panchpatmali on temporary one-year extension since December 2012. The company has shut 25% of its smelting capacity owing to lack of coal supply from Mahanadi Coalfields (MCL). This will impact metal production in 1QFY14. The company commissioned its 50.4 MW wind power plant in Andhra Pradesh in 4QFY13. At the current price of Rs 33, the stock is trading at a multiple of 14.6 times its trailing twelve month earnings. We maintain our Buy view on the stock from a long term perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio

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